When does a business need to register for VAT

Managing a business's accounts can be tricky, particularly when it comes to tax obligations and understanding when to register for VAT. Any company that sells goods and services in the UK may be obligated to register for VAT. This obligation will depend on your business turnover and what type of goods or services you sell and where.

In this blog, we'll take a look at the regulations around when to register for VAT and what a business's obligations are for this tax.

What is VAT?

Value Added Tax (VAT) is a tax on goods and services bought and sold in the UK. The current standard rate of VAT in the UK is 20%. VAT is a consumption tax, which means that it is paid by the final consumer of the goods or services, but it is collected and remitted to HM Revenue and Customs (HMRC) by businesses registered for VAT.

When a business sells goods or services, it may be required to charge VAT to its customers. The VAT charged on sales is known as output tax. However, businesses registered for VAT are also entitled to reclaim the VAT they have paid on purchases made for their business. This VAT is known as input tax.

When does a business need to register for VAT?

The VAT registration threshold is based on a business's taxable turnover. Taxable turnover is the total value of goods and services a business supplies in the UK, excluding any VAT it charges. If your taxable turnover exceeded £85,000 for the last 12 months, you are required to register your business for VAT with HMRC. You must also register if you expect your turnover to surpass £85,000 in the next 30 days.

Other circumstances when businesses are required to register for VAT

There are also some other circumstances in which a company must register for VAT, regardless of its turnover. These include:

Selling goods to the UK from abroad

If you and your business are based outside the UK but sell goods or services to customers in the UK, you must register for VAT.

Acquiring a VAT-registered business

If you acquire a VAT-registered business and its turnover combined with that of your current business exceeds the threshold, then you will need to register for VAT.

Voluntary VAT registration

Businesses can also choose to register for VAT voluntarily when they have a taxable turnover below the threshold. Known as 'voluntary registration', this can have some advantages, such as being able to reclaim VAT paid on purchases made for the business. It can also make the company appear more credible to other businesses.

When your business does not need to register for VAT

As well as being under the turnover threshold, there are certain circumstances when you do not need to register with HMRC for VAT. For example, if you sell goods from the UK to the EU, you do not usually need to charge VAT. However, if you sell digital services to EU customers from the UK, you can register for non-union VAT MOSS. This is a very complicated area of VAT and a VAT expert should always be involved.

Furthermore, certain goods and services are exempt from VAT. These include medical treatment and healthcare, charity events, education and training and sports activities, as well as some food and drink. A complete list of VAT-exempt goods can be found here. If your business exclusively sells goods exempt from VAT, you will not need to register for this tax. Again, this is not always a straightforward area and a VAT expert should be involved.

What are the obligations of a VAT-registered business?

Once a business is registered for VAT, it must charge VAT on its sales and submit regular VAT returns to HMRC. VAT returns detail the amount of output tax charged on sales and the amount of input tax paid on purchases made by the business. The difference between output and input taxes is the amount of VAT payable to HMRC.

Most businesses in the UK must register for VAT if their taxable turnover exceeds £85,000 in a 12-month period. However, there are some alternative circumstances that can mean a business may or may not need to register.

Working out what your business's obligations and when you need to register for VAT can be challenging. If you need clarification, please get in contact with Keith Graham Chartered Accountants. Our experienced team will be able to advise you and assist with keeping your records up-to-date and filing your VAT return.